Aging Population Trends Will Expand Retirement Solutions

Key Takeaways

• Demographic shifts and changing retirement models are driving sustained demand for Equitable's retirement solutions, supporting ongoing growth in assets and recurring revenue.
  
• Product innovation, strategic partnerships, and digital expansion are strengthening Equitable's market position, enhancing margins, and contributing to scalable revenue and earnings growth.
  
• Shifts toward lower-return products, market pressures, asset management outflows, unclear growth investments, and increased regulatory risks threaten profitability and future earnings growth.

Catalysts

Together with its consolidated subsidiaries, operates as a diversified financial services company worldwide.

• Demographic trends-particularly the steady increase in the U.S. aging population and rising retirement needs-are driving sustained organic demand for annuity and retirement solutions, as evidenced by record AUM ($1.1T, up 8% YoY) and robust net inflows across Retirement and Wealth Management segments; this is likely to translate into higher future revenue, ongoing client asset growth, and enhanced fee-based income.
  
• The continued shift from defined benefit to defined contribution retirement plans and expanding middle-class wealth is increasing individuals' responsibility for retirement savings, fueling long-term demand for Equitable's products and resulting in consistently strong sales volume, recurring net inflows, and healthy advisory growth (12% organic YoY), all supportive of revenue and EPS expansion.
  
• Product innovation (notably in RILAs, fee-based, and protection-focused annuities) and first-mover advantages through partnerships with major asset managers (BlackRock, AB, JPMorgan) position Equitable to capture premium pricing, differentiate from competitors, and access new markets; this is expected to improve average margins and support long-term earnings growth.
  
• Strategic capital actions-including the Individual Life reinsurance transaction and ongoing share repurchases-have released significant capital, reduced earnings volatility, and enabled immediate redeployment into higher-return businesses and buybacks; this provides greater EPS accretion, improved capital efficiency, and prospects for higher ROE.
  
• Expansion and digitization of third-party and affiliated distribution channels, alongside investments in technology and digital platforms, are increasing reach, advisor productivity, and persistency while lowering client acquisition costs; these operational efficiencies are expected to contribute to scalable revenue growth and margin improvement over time.

Equitable Holdings Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Equitable Holdings's revenue will grow by 19.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from -9.2% today to 12.3% in 3 years time.
• Analysts expect earnings to reach $2.2 billion (and earnings per share of $9.91) by about August 2029, up from -$982.0 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $2.9 billion.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 7.6x on those 2029 earnings, up from -14.3x today. This future PE is lower than the current PE for the US Diversified Financial industry at 16.8x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.11%, as per the Simply Wall St company report.

Risks

• The runoff of higher-margin legacy RILA (Registered Index-Linked Annuity) business-originally written when Equitable Holdings had the market to itself-means that portfolio mix is shifting towards lower-return products with stabilized margins, resulting in lower incremental profitability and a potential drag on net margins and earnings growth over time.
  
• Intensified competition in the RILA and retirement solutions market, as more carriers enter with aggressive pricing and broader distribution, could compress new business margins and limit Equitable's ability to achieve future premium growth and maintain fee-based revenue growth.
  
• Recent and ongoing outflows from AllianceBernstein's (AB) active investment management businesses, coupled with persistent industry trends towards passive and robo-advisory solutions, present risk to fee-based revenue and overall profitability in asset management.
  
• Capital redeployment from the Individual Life reinsurance transaction prioritizes share buybacks and increased AB ownership, but limited details on viable organic or inorganic growth investments, alongside already elevated payout and buyback ratios, may constrain future return on equity (ROE) improvements and organic revenue expansion if accretive deployment opportunities do not materialize as planned.
  
• The company's increasing reliance on alternative capital structures and offshore (e.g., Bermuda) reinsurance for consistency in cash flows could heighten regulatory and counterparty risks in the long term, and if regulatory scrutiny of insurance product structures or capital adequacy intensifies, it could increase compliance costs and reduce overall net earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $61.0 for Equitable Holdings based on their expectations of its future earnings growth, profit margins and other risk factors.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $68.0, and the most bearish reporting a price target of just $52.0.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $18.0 billion, earnings will come to $2.2 billion, and it would be trading on a PE ratio of 7.6x, assuming you use a discount rate of 8.1%.
• Given the current share price of $51.3, the analyst price target of $61.0 is 15.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.